Economy records quickest expansion since Q2 2022 in Q4

GDP growth accelerated to 2.2% year on year in the final quarter of 2023 from 1.3% in the third. The reading, which marked the best result since Q2 2022, partly reflected a low base of comparison. The economy returned to growth on a seasonally adjusted quarter-on-quarter basis, posting a 1.1% expansion in Q4, improving from Q3’s flat result and marking the best result in two years.

The annual upturn reflected private consumption expanding 1.2% year on year in the final quarter of 2023 (Q3: +0.3% yoy), the best reading since Q1 2023. Additionally, government spending growth accelerated to 4.8% (Q3: +2.4% yoy). That said, annual fixed investment growth fell to 9.1% in Q4 (Q3: +9.9% yoy). On the external front, exports of goods and services fell 2.3% on an annual basis in the fourth quarter, which was above the third quarter's 8.6% contraction. In addition, imports of goods and services dropped at a more moderate pace of 4.0% in Q4 (Q3: -10.6% yoy).

Looking ahead, the economy should gain further momentum in the coming quarters. Inflows of EU relief funds and the gradual normalization of activity after historic floods hit the economy in Q3 2023—with factory output, particularly in the automotive industry, projected to return to pre-flood levels as soon as Q1—will support growth. Moreover, multi-month low inflation and a looser monetary policy backdrop later this year will bolster domestic demand throughout 2024.

Analysts at the EIU commented on the outlook: “Activity in the large automotive and tourism sectors was hit by the severe floods in August 2023 and localised disruption will continue in 2024. Overall however, we estimate that the aggregate macroeconomic impact will be limited, with the stimulative impact on construction and investment activity largely offsetting negative effects on trade, industry and consumers.”

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